An Australian academic centre said competition in the wake of Chi-X entering the local market produced net benefits even after taking account of costs associated with regulatory issues.

A study by Capital Markets Cooperative Research Centre (CMCRC),
an Australian academic centre, said competition in the wake of
Chi-X entering the local market had brought net benefits of up to
$215 million.

Professor Michael Aitken, CEO of the CMCRC and Professor of
Finance at UNSW, said the study looked at how the introduction of
competition to the Australian equity market affected market
quality. It estimated metrics representing efficiency and
integrity before and after the introduction of Chi-X and sought
to quantify the cost savings arising from reduced trading costs.

"Importantly, they then compared these to the additional costs
competition had imposed, including increased costs of regulation
and the technology costs borne by the trading community
connecting to the new centre," CMCRC said in a news release.

"We have heard a lot from the trading community about the extra
tech and regulatory costs they have to bear now, so we were
somewhat expecting our results to reflect that," Aitken said.
"However the results demonstrated unequivocally that the industry
has saved money overall, even taking into account ASIC's cost
recovery program."

"We looked at bid/ask spreads and found that quoted, realised and
effective spreads had declined since Chi-X was introduced. The
more Chi-X volume goes up, the more these decline which means
that as Chi-X gains market share it becomes cheaper overall to
trade equities. This has resulted in cost benefits for all
investors but particularly those trading the securities jointly
traded on the ASX and Chi-X."

The study also reviewed price discovery mechanisms.

"We looked at the data over a number of time periods, and
measured competition as a continuous variable," Aitken said. "Our
conclusions remained consistent under all scenarios so we are
very confident to say that yes, competition has been an
unequivocally positive thing for Australia."

Aitken said competition in Australian markets should not be
compared to more highly fragmented markets such as the US. "We
have the situation here where we have two primary markets and a
number of dark pools, and this level of fragmentation is small
compared to the US where there are over 300 different trading
venues," he said.

"The benefits we find in this study are consistent with what we'd
expect to see from the initial break-up of an effective monopoly.
It should not be construed as advocating competition such as the
US experiences - that is a completely different scenario."